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Ed Seykota's

Frequently Asked Questions

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March 23-31, 2003

 

Questions

Replies

Mon, 31 Mar 2003

FAQ Feedback

Hi again, Ed,

Brenda Ueland wrote If You Want to Write: A Book about Art, Independence and Spirit in 1938. It is a book about writing, but she tells her readers of
multi-uses for her book:

Whenever I say 'writing' in this book I also mean anything that you love and
want to do or make. It may be a six act tragedy in blank verse, it may be
dressmaking or acrobatics, or inventing a new system of double entry book-
keeping. But you must be sure that your imagination and love are behind it,
that you are not just working from grim resolution, i.e. to make money or
impress people.


What's great about the development of your FAQ is that you seem to be going in a similar direction as Ms. Ueland. If something else was substituted for
'trading' in your writing, your parables and lessons are just as important for
the non-trader.

The January 1, 2003 plan for FAQ: to handle a few requests per month for advice.

As of March 31, 2003, I receive several good questions per day.

FAQ seems to be finding a niche.

Finding an Itch

Mon, 31 Mar 2003

Heat

I read your article on portfolio heat. I don't understand what it is:

 

the total amount you should bet at any one time, distributed among the current bets

the amount you should place on any one bet

something else entirely.



I think its the first - to this end I created a spread sheet that employs the same method, that you can figure out max portfolio heat from the results of one cycle. I just used my % winners, size winners, % losers, size losers (standardized to one for this), and extended it over 100 trials. I came up with ~40% for this short term trend following system ...

Any clarification will be very appreciated.

The term, Heat, as I use it, means actual position drawdown.  Say you risk 1% of your equity on a position. The market reacts about half way to your stop and then takes off in your direction after all. So you take about 1/2% actual heat on the trade. 

You could have a very high-risk trade that delivers zero heat. Or, you could get a fill beyond your stop and wind with more heat than original risk.

The term, Heat (first appearance: an article by Dr. Dave Druz and myself) seems be evolving into a catch-all word for volatility, drawdown and risk.

In your models, be sure to give definite names and precise meanings to all your  parameters, such as:

initial risk for each instrument
total portfolio initial risk
open market risk for each instrument
total portfolio open market risk
total risk to equity ratio
largest percent drawdown from a previous all-time high.

 

 

Habanero Red Savina - Maximum Heat

 

Habanero means from Havana. The Habanero pepper, is likely from the Yucatan Peninsula. Guinness shows The Red Savina Habanero as the world's hottest spice at 577,000 Scoville units! You have to dilute one part of Red Savina (C18 H27 NO3) with over a half million parts of sugar water before you no longer feel the heat. Jalapenos rate about 4,500 Scoville units.

See other FAQ's on heat: 1  2  3  4  5  6 .

Mon, 31 Mar 2003

 

Meeting

Mr. Seykota,

I found your web page two days ago. I almost feel that it is not a coincidence that I will be in your state and I find your web site two days before arrival. I have looked up your name to find some trading methods for years and never found too much.


I am 34 years old. I wrote to the author of Market Wizards to see if I could get a mentor when I was about 20 and he wrote me a very nasty letter back. Man that hurt but I traded on ...


Anyway I love making money trading and you are helping me to clarify my thinking. I would like to visit you and possibly attend a meeting. I think I overtrade and maybe follow the market too closely.

 

I don't think anyone should be poor in this abundant World and I think Stocks technology and all kinds of trading can alleviate poverty and suffering Worldwide.

 

I can do my part by becoming Super Rich and turning dirt into Wealth by creating things like businesses and jobs with my wealth. Also I would like to help poor, old and sick people.


I traded commodities and futures for a short while (Corn, Wheat etc.) about 11 years ago and broke even. But stupid books that said it was too risky scared me away. I will try again soon.


Let me know if I can or should attend some of your meetings. My wife would kill me but I could stop by this vacation or I will buy another ticket sometime afterwards.

 

I have to go to bed now to be fresh for work tomorrow.

Many Thanks

I wonder how you manage to get such a letter from a kind man.

See the Directory for how to attend meetings.

If you want to create businesses and jobs and help the poor, old and sick, you could perhaps bypass trading and go direct, say to designing and building assisted-living centers.

My bluegrass band plays at such facilities, to entertain the residents. Perhaps we could play at one of yours.

Direct Care Delivery System

 

Mon, 31 Mar 2003

 

Handling Emotions

 

Dear Mr. Ed Seykota,

After having studied some time I have devised my trend following system. By applying back-tests I have come to the conclusion that in the long run my system will make money. But I have some problems:

- Although I know that I play the game according to my game plan, sometimes when the market goes against me I feel myself depressed due to losing money and also when my account gets to higher levels I find myself in an euphoric mood. I totally know that these emotions are dangerous to my results but I can not keep myself away from these moods. Is it possible to think that after some years of experience in the market it will be much easier to handle my mood. Or to say it another way, is there anything I can do to speed up the process of handling emotions in a more effective way.

You identify a central issue: how to handle feelings of winning and losing so they don't wreck your trading. Some theories:

 

commit to the system and ignore the feelings.

develop a hard shell, a stiff upper lip, a coat of armor.

adopt a what-me-worry attitude.

reduce trading to the sleeping point.

emote profusely, all over your friends and associates.

outguess the urges, buy instead of sell.

use the feelings to guide personal growth.

 

Each method has pros and cons. The effective way is likely different for different people.

 

The Trading Tribe goes for personal growth. The process is a little like pulling out crab grass. You really don't know where it begins or ends. As you keep working at it, the whole lawn keeps looking better.

 

Crab Grass

For a spiffy lawn, maintain eternal vigilance and hand weed at the first appearance.

Sun, 30 Mar 2003


Breakouts

Mr. Seykota,

Would you be kind enough to comment on how you identify breakouts?

A breakout is a forceful emergence from a restrictive condition or situation.

In trading, a chart breakout marks a change in trend, and an opportunity to buy or sell, according to a technical system.  Many basic texts on technical analysis have a section on breakouts.

The overall market process is similar to the personal "aha"  experience when you catch on to a new concept.

FAQ does not of recommend specific trading system parameters. See FAQ ground rules.

 

Breakout

This novel describes emergence from various restrictive conditions and situations.

Mon, 31 Mar 2003

Radial Momentum


Dear Ed,


I read your articles about Radial Momentum.

Some 34 years ago a friend of mine was running around (in Australia) with a Russian inventor who came up with the idea that hydrogen could be utilized as fuel to run a motor car.

Now my friend was a very determined man ... all to no avail. My friend wasn't a person to give up easily so he dedicated a good part of his life on promoting the project but ... didn't get anywhere.

Today, some 30 years later, it is a fact that several car manufacturers  now have a working prototype.

This goes to show that it is not so unusual to run into enormous resistance to a new idea (just as you have found).

A large amount of persistence is required to succeed. However from what I have read on your website I do get the impression that you do have the required 'obsession' to see it through so I wish you well.

I agree that presenting ideas about momentum, both in trading and in fluid mechanics can be quite an adventure.

Isaac Newton (1643-1727)

A champion of momentum theory. A body in motion tends to stay in motion ... or at least until the trend runs out of steam.

Sun, 30 Mar 2003

 

Favorites

Dear Mr. Seykota,

I enjoyed reading both Market Wizards books authored by Mr. Schwager. In particular, I find myself re-reading your interview because of your simple yet profound approach to trading.

My questions for you are:

1. What is your favorite movie? Why?
2. What is your favorite book? Why?
3. Who is your favorite historical figure? Why?

Thank you for your response.

Attaching to favorites can interfere with trading.

 

 

The Byrds - Turn, Turn, Turn

The popular 60's song gets its words from Ecclesiastes 3:1-22

 

1. There is an appointed time for everything. And there is a time for every event under heaven.
2. A time to give birth and a time to die;
A time to plant and a time to uproot what is planted.
3. A time to kill and a time to heal;
A time to tear down and a time to build up.
4. A time to weep and a time to laugh;
A time to mourn and a time to dance.
5. A time to throw stones and a time to gather stones; A time to embrace and a time to shun embracing.
6. A time to search and a time to give up as lost; A time to keep and a time to throw away.
7. A time to tear apart and a time to sew together; A time to be silent and a time to speak.
8. A time to love and a time to hate; A time for war and a time for peace.

Sat, 29 Mar 2003

 

Seeds and Reasons

Mr. Seykota,

I finished your "Market Wizards" interview. I'm 3/4 through the book and the technicians outnumber the fundamentalists ... interesting.

What I'm gathering is that the "Wizards'" intuition might be the reason for all the success. The technical don't seem to be very complicated. Its a matter of figuring out which to use and how to apply them (maybe that's the difficult part...at least time consuming?) Only a few rely solely on fundamentals, and these guys seem to be extremely intuitive with the markets. I'm wondering if this intuition is just a matter of spending a great deal of time watching the markets and learning their behavior...learning their psychology ... would you agree? Then the technicals are there to back-up the intuition.

I completed the assignment you recommended, however I didn't eat an apple. I don't like apples. I ate a seedless watermelon instead ... finished the whole thing ... all 30 pounds of it.

In addition, great quote from Goethe.

Another reason for success is that they do the things that others don't want to do: buying breakouts, cutting losses, waiting for a move to start, or completing a task .

Your task, to eat an apple, seeds and all, is still incomplete.  You appear to have reasons instead of results.

I wonder how come you can't chew an apple's worth of seeds and yet you can grind the rind off of a 30-pound seedless watermelon.

 

Seedless Watermelon

Typically 15 pounds.

Sat, 29 Mar 2003

 

Sounds Too Easy

 

I found your comment of (Fri, 28 Mar 2003, Psychology) very profound. You're truly humbling.

You make everything sound easy. So far, I know I was spending too much time to the development of trading skills and math, and too little to the development of my spirit and psychology, even though, I thought I was allotting enough time to those areas.

There is nothing quite like admitting you don't know anything to make people think you know something.

I'm Saying Nothing

Sat, 29 Mar 2003

 

Historical Data

 

I'm looking for historical end-of-day futures data to use for system back-testing. Of course, the validity of the tests will only be as good as the data is accurate (well, the design of the tests, my programming skills, and interpretation of the results come into play too).

I've done some web searches, and even bought some data. And it's apparent that some of the people who sell data don't use it to system test, or if they do, they're ignoring data type mismatch errors.

Are you still in the data business? I know you once had an affiliation with [XXX], and maybe still do, but I haven't been able to find them on the web and as near as I can tell they no longer exist. I don't know if you'd be willing to recommend a company by name, as it might interpreted as an endorsement, but I'd appreciate any input you could provide. Have you ever sold your own historical data?

Thanks in advance.

Data errors arise in many ways:

 

Keypunch operators

data storage compression and de-compression

vendor signature ID marks
data interpolation to fill gaps
adjustments for splits
adjustment for stock dividends

Some stock data bases include only  currently trading stocks so many shorting opportunities no longer appear.

Still, you can get an idea about how your system works by testing it over whatever history you can get.

One good way to check data is to display it on a chart with a moving average, see if it looks reasonable. 

Another is with a program for multiple consistency tests. If you set the net too loose, you miss some errors. If you set it too tight, you catch lots of clean days too.

Clean that show up in a tight net can go into a Dolphin File. The next time around, they get an exemption to get free from of the net.

Dolphins Go Free

Sat, 29 Mar 2003

 

Risk Taking

 

Dear Sir. Edward Seykota,


I am Italian, born in Sarajevo (Bosnia), living in London (UK), and I am fond of trading. It has been a pleasure for me to learn that you now maintain your own Trading Tribe web site and that you are willing to share you genius insights with others.

In my experience as a trader and someone who managed to make well over 100% in return on equity last year, I feel very much that in order to have a $5,000 account grows to as much as $15,000,000 in 15 years time, it requires not only a huge amount of LUCK but also an extraordinary risk taking soul, which quite possibly was accomplished through a 20%-heat IRON stomach and no more than 2 to 3 positions at the time (each initially greater then 2% of course)!

I would really appreciate your opinion about my assumptions and your Risk taking intentions/feelings/abilities/styles in the years from 1975 to 1989 and now? In case they were different (a very likely scenario), wouldn’t you mind briefly explaining as to why, apart from the fact that you are richer now? Also, did you have any exposure to neural networks over the last 30 years and if so do they hold any ground?

P.S. Could you please confirm if success in trading lies in 40% psychology, 40% money management and only 20% timing?

Many Thanks in advance

There is a lot of difference in how you tune a network - depending on what you seek. Some seek to predict prices in the future and others seek to know the trend now.

In your recipe for success, don't forget  commitment - and a deep belief in the inevitability of your success.

Goethe (1749-1832)

Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation) there is one elementary truth the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, providence moves too. All sorts of things then occur to help one that would never otherwise have occurred. A whole stream of events issue from the decision, raising in one's favor all manner of unforeseen incidents and meetings and material assistance which no one could have dreamed would come his way. Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now.

Sat, 29 Mar 2003

 

Thank You

 

I want to thank all you for taking the time to share. I have learned a great deal. I hope one day to repay the favor. Thank you.

You can also pass it on.

The basic pass with the inside of the foot. This presents a flat surface to the ball.

Fri, 28 Mar 2003

 

Psychology

 

Dear Mr. Seykota, you have more than 30 years of trading experience, and I'd
like to make you some questions.

 

Do you knew the importance of psychology when you started your trading career?

If not, how do you explain your success in those days?

Do you think that a man or a woman can trade successfully having the right principles in his or her subconscious? (He or she doesn't think about those principles, but just applies them correctly).

The longer I am in this business, the less I seem to know.  If I keep going long enough, I might actually get to zero information.

In the markets, just about everything works sometimes, and hardly anything works all the time. Whatever your subconscious programming, it has a fit with some kind of market.

Glass Slipper

There is a foot for every shoe and market for every method.

Fri, 28 Mar 2003

 

No Time Like the Future

 

Unfortunately I don't have the time to help XXX improve his product, I'd rather save the time for your future materials.

Back to my original question. Any suggestions on building a statistically sound back testing and money management model that uses discretionary entry and exit signals similar to Jesse Livermore's concept of pivot points?

Any suggestions on what markets from the 1970 - 1990 had significant trends which may help train me to find the next ones in the future?

To back-test a discretionary model:

 

build a mathematical proxy and back-test that.

trade for a few years and see how you do.

Livermore has a history of taking large risks, and going broke.

When you show me how to access the future, I can show you how to find trends there.  I notice you wish to save time for my future materials. If you could send me some of my future materials now, I could save some time too.

Sounds like you are a fundamentalist waiting to happen.

Warning !!!

No worries, it is set to go off in the future.

Fri, 28 Mar 2003

 

Wishing for Opportunity

 

Mr. Seykota:

I am a self-made trader. I was born in Argentina, I lived 13 years in Barcelona, Spain and now I am living in Colombia. I am 32 years old. I am a trend follower and I have some individual things that I add to my trades.

I have no university education, (only one year in law but I give up for job in a Spain broker) I only have markets and trading education. I had traded markets in Europe and I received an offer from a Colombian broker. I decide to come here because I wanted to learn more a more, but this experienced was not very good, I had lost a lot of money in my divorce and the local market is not very good now.

By luck, my personal life is beautiful now. I had a very good girlfriend besides me, she is a dermatologist doctor, a very good professional and a person who is besides me just now, in this difficult labor market.

I had bought a trading course some years ago. I had read markets wizards books and every interview or opinion from a trader who is an example for me, like Seykota, Tudor Jones, Soros, you know.

I want to know how I can Have the opportunity of demonstrate something of my skill in markets and how can I learn more from traders who are very good? I want to come back to markets. I want to learn more and more, I love markets and I can live without them but now, I have a little job like analyst for a local broker and I have no capital to trade markets again. And local market, I repeat, is not good now.

I am looking only for an opportunity, not for free money. I want to trade for somebody for free, I only want to have an opportunity. I want to trade besides somebody who I can observe, listen, talk to and learn more and more every day. I am not afraid of working hard, thanks that I worked hard every day of my life in markets I have something of skill. Every hour of every day, I was looking at markets, charts, reading from other traders ... and I still make this every day.

If it is not possible I will be grateful with you if you can give me the opportunity to talk to you some day.


Thanks and regards

P.S.: Sorry, my English is not good, I never could study English, markets teach me it too.

You wish for opportunity.

One way is to make the opportunity. Declare your goals and ambitions, and then go out and make things happen. 

Another way is to throw yourself into your little job, and allow your boss to present you with big opportunities.

Another way, and perhaps the easiest, is to purchase some of the spray-on product below.

 

EZ Opp

Opportunity Magnet Body Spray

 

EZ Opp Spray emits the magnetic aroma of focus and industry. People get a whiff of it and want to bring you opportunities. They can't help it. Spray some on your friends, family and co-workers and watch the opportunities roll in.

 

 

 

 

 

Fri, 28 Mar 2003


SVO-p Language


Can you please elaborate further on what you've termed SVO-p language? How is it important and how does it fit into trend following? And if you may, please point out how one can go about integrating consistently such language in daily life.

Fundamentalists like to analyze past events and predict the future.  Trend Followers react to the ever evolving moment of now.

Subject-Verb-Object-present tense  syntax supports Trend Following in many ways:

The Subject takes responsibility for verbing the object; passive forms conceal the subject and avoid responsibility.
The present tense supports action in the now. Thinking about what is supposed to happen in the future can tempt a Trend Follower to override a signal he gets in the now.

Say, do you have the time?

Sure Baby, but not right now.

 

Fri, 28 Mar 2003

 

Psychology (see reference)

You answered me yesterday "Achilles mom, Thetis forgets to dip the other ankle in the magic Styx water. Some think his real weakness is a matter of pride, that shows up as hesitation to cut losses".

I think you have centered the point. I have studied extensively the financial markets in the last 9 years, but I must say the truth, I have hesitation to cut losses. I think my problem is only psychological, because when I trade leaving my ego in the corner I make money. When i trade like "hey guys, I'm the best trader around" I have hesitation to cut losses and I lose money. Hope you can help me in some way.

The Trading Tribe method of dis-solving behavior patterns includes expressing underlying feelings in an environment of intentional group pacing.

In the case of hesitation to cut losses, you might tell how that feels, and then others might role-play your situation and otherwise demonstrate empathy.

We do not offer advice to each other.. Sometimes listening and empathizing does more good than advising.

People have two ears and one mouth.

Chief Seattle, 1854.

Man does not weave the web of life - he is merely a strand in it. Whatever he does to the web, he does to himself.

Thu, 27 Mar 2003

 

Fundamental vs Technical

You said on FAQ: "Fundamental trading is an anti-trend following system with a tendency to cut profits and let losses ride, even add to them. Organically, the fundamental approach avoids the feeling of many whipsaws and then gets one big hit in the end.

I'm a pure technical trader, I have a trading range breakout system, with my exit rules and my money management algorithm.

I have also read a lot about fundamental analysis, and I think that the battle between fundamental and technical analysis is pure nonsense.

I hare read William O'Neil's book How to make money in stocks and I think, even if I don't use fundamental, that this book is one of the best book ever written on trading.

O'Neil tells how to select stocks that have a big probability to make huge moves, how much risk to take on every trade, how to buy stocks (a lot of patterns), and how to exit from the market (a lot of exits rules), if the selection process is wrong.

For me good trading is good trading, is not important if we use fundamental or technical analysis. The point is that we must find a trading system that fits our personality.

Excuse me for my bad English

There are more styles than traders.

Basic principles of Trend Following:

Trade with the trend
Ride winners
Cut losers
Keep risk manageable

These work well for fundamentalists and technicians.

One Achilles Heels in the fundamental approach: certainty about the (non existing) future can conflict with the principles.

A fundamentalist who cuts losses (at even "better" prices than the original entry price, knowing it just has to go up) is also a Trend Follower.

He'll trade like O'Neil if He'll Heal his Heel.

Achilles mom, Thetis forgets to dip the other ankle in the magic Styx water. Some think his real weakness is a matter of pride, that shows up as hesitation to cut losses.

Thu, 27 Mar 2003

 

Trading and Family



Dear Mr. Seykota,

 

I'm an Italian trader in the inter bank currency market. I have read your interview in the "Market Wizards" a lot of times, and I want to say that for me you are not only one of the best traders in the world, but you are for sure a great man. I have learned from you that success in trading is good only if we have success in real life. What difference does it make if I earn 1.000.000€ or 5.000.000€ per year, if I'm not happy? I can be a good trader only when I have my mind clear, and I can have my mind clear only when I know what is the most important thing in my life.

 

For me the most important thing is my family, and if I trade for make my family and me happy I can have great results. Think about that. If you was at the end of your life what should you think? should you think about your money in your bank account, or should you think about your childrens and your wife? "To be a money master, you must be first a self-master".

Thanks for all.

I calculate the difference would be, about 4.000.000€ per year plus being unhappy. 

How about put family first, and then go for the money and the happy too.

 

Get 400 Diecimila Lira more per year ...

... and still see this in the mirror.

Fri, 28 Mar 2003

 

Reading Between the Lines

Hi,

Reading in between the lines in Market Wizards I have come to the conclusion that the basic building blocks of your technical analysis involves very much the following:

 

using a set of moving averages (to determine the trend)2.

doing cycle analysis (to fine tune your entrees and exits)

 

Am I correct in that conclusion ?

Trend Followers read the lines on the charts.  Be careful about reading too much between the lines. Trend Followers don't have to save face about incorrect predictions.

 

 

How to save FACE

Read between the lines, on a Treble Staff

Wed, 26 Mar 2003

 

Day Trading

I reviewed my daily trading activity. I came to the same conclusion as you initially offered: daily trading is very inefficient, and reduces me to the guesser. When I got back from Chicago, I was very excited, and decided to trade daily ... Result - ACTIVITY, but weak profit. Though I am making a few bucks here and there, it does not worth the effort.

Only now, after about a month, I was able to
extract the essence of the problem with daily trading. It consumes time, obscures mind, makes me addicted to the news coverage, with pitiful results. Once again, I am making some money, but all the effort just does not worth it.

All those, bid-ask spread, commissions, inefficient filling, human errors, and stop hitting on daily level are eating away my profit. And if even they would not, this is still much less efficient than just "buy/sell and hold" (at the right time, though!). I'll try to do that.

Only now I begin to appreciate fully your philosophy about trends ... Thanks

Sometimes, very bright people, in their search for meaning, accept activity as a proxy for right livelihood.

 

Day Traders Commuting to Work

Wed, 26 Mar 2003


Half Way to Figuring it All Out

 

I am currently reading "Market Wizards" and I have gotten through half of your interview. I liked what you had to say so I hoped online and did a search for "Ed Seykota" and here I am. It's great that you're helping people out. If I ever become as successful, I will do the same.

I, too, have an engineering degree ... so I like the technical way you approach the markets. My understanding is that the markets trended much better when you started out. Do you see any difference with today's markets? Does the trending approach still produce significant gains?

I've visited tons of web sites, read books, subscribed to news letters, and there seems to be an overflow of information ... and as a novice trader too much info is a problem.

Do you have any comments on what strategies to approach? Would you recommend getting into commodities brokerage? I am determined to figure "It" out. Having a mentor would be great. Too bad I don't live in Incline Village. Actually I live in Palm Beach, FL ... maybe you know someone here who is mentoring like yourself.

Well, any info would be great.

Seems like you start something, get about half way and then start off in a new direction.  That is consistent with your feeling of information overflow.

How about you resolve to pick one task, say eating an apple, and finish it completely, even the seeds and stem.

Trends come and go. Trend followers do too. Some stay longer than others.

Eat an apple a day.

Doing that could help you remember ...

to eat an apple a day.

Wed, 26 Mar 2003

 

Going With Something Bigger

 

Seems like trend following might be described as agreeing to give up some measure of control and going along with something bigger than you are. Agreed?



Fundamentalists typically feel their analytics  eventually control events. Trend Followers are content to submit to the flow of events.

Stampede !

Trend Followers don't stick around to convince Mr. Elephant that he is supposed to be somewhere else.

Wed, 26 Mar 2003

 

Psychology in a Winning System

 

Online classroom forum with Ed Seykota? Viva Internet!

My question is:

You simulate a trend following system on a market for n years of prices. The results give 0 real profits; or not statistically significant.

So how can psychology help?

If we follow this system, with 0 psychological involvement, than results are flat.

If we put a certain psychology in, then the resulting coupled system is the new trading system.

You have a winning trading system, no need for psychology; you have system with psychology ingredient than this is a new meta system where psychology is encoded in. That meta system in that encoded form doesn't need psychology either.

Can you say a simple trend following system is enough for trading success? If a person is winning, she should have a winning approach, maybe in some part implemented as actions driven by some psychology.

I'd very much appreciate if you especially post what you think are the errors or the missed points in this reasoning.

PS. I'm a young Electrical Engineer gradated from what we could call the Turkish version of MIT, Bilkent University. I read Market Wizards maybe 6-7 years ago in the university library. I was particularly attached to one figure in that book.

Seems like you want to take psychology and put it into your system, and be done with it once and for all.

I wonder how much luck you have with putting psychology, like caring and compassion into your other relationships so as to be done with it once and for all.

 

What do you mean you don't think I care? My records show I already put flowers in our relationship, several years ago ...  and here's the invoice to prove it.

 

Wed, 26 Mar 2003

 

Therapeutic Alphabetics

Ed,

It seems the world of psychotherapy in the past 10 years has changed quite a bit. People are moving away from 'talk' therapy to NLP, EMDR, EFT etc.

 

What in your opinion is the most effective therapy to bring about personal change?

Thanks very much

Talk therapy, and the alphabetics you mention all aim to fix your internal programming.  Personal growth might be a community project, involving your roles and inter-active commitments with others, as well as your principles and ethics.

 

Sometimes, when you lose yourself in service to others,  you find yourself.

 

Personal change seems to thrust itself upon some people as a matter of grace, and grace seems to visit those willing roll up their sleeves and handle the next job that comes along.

 

 

Personal Change

It's value is a community project.

 

Wed, 26 Mar 2003


Possible Group in San Jose

Dear Mr. Seykota,

I see on your ‘meetings’ page that there is one request for a San Jose site for group meetings. Make that 2 now. What with current gas prices and distance, driving to Incline Village is impossible without affecting my GDP (Gross Driving Policy).

When someone volunteers as the area coordinator for San Jose, I can post the email address.

 

San Jose, CA to Incline, NV is about 250 miles. At 25 mpg, that's about 10 gallons or about $20 each way.

 

I wonder if there are other trading resources you forego on account of them being in or above this price range.

 

 

$20, Confined to State Quarters

 

Wed, 26 Mar 2003


How Many Markets to Trade

see reference

Dear Mr. Seykota,

Thank you for your help yesterday. Just as a follow up question: my problem seems to be that I'm spending a tremendous amount of time scanning several thousand stocks for trading signals and even when i get them, I get so many that I'm having difficulty on deciding which I should act upon.

 

I can't take all of them. This is creating tremendous stress for me as well as taking away from my quality time with my children.

 

Can you please at least give me a guide as to what is a reasonable number of stocks to follow to give me a good chance of being profitable and is a large enough sampling group for diversification purposes.

 

My family and I will be eternally grateful, not to mention my clients.

 

Thank you again for all your insight.

You have just about as much time as the rest of us: 24 hours a day. You can choose what you invest with it.

 

You could first invest your children with your time.

 

Then you could invest your system with a rigorous definition of your selection method, so a computer can help with scanning and even with decisions.

 

FAQ does not  recommend specific system parameters. See ground rules.

 

Be careful about predicting the future, and about making promises, especially on behalf of family.

 

 

Invest: to clothe, adorn or endow.

No mention of indenturing.

 

Wed, 26 Mar 2003

 

Am I a Trend Follower ?

Dear Ed Seykota,

I want to give you the brief overview of my trading system. Can you please comment on it whether it resembles trend following strategy or is there some points that still lack.

1. I define a market whether it trends or not by using 2 simple moving averages ( 10 and 20)

2. My risk per position is between minimum 0.5% and maximum 2% of my equity.

3. After the market starts to show some positive signs (making a new high after it has dropped for some time) I get ready.

4. If the market starts to trade above the 10 day moving I make my first commitment by risking 0.5% of my equity.

5. After this I watch the market if it resumes to trending or not. If it increases by 5-10% from my initial purchase price I add another position by risking 0.5% of the equity again.

6. If it trends strongly, I add till the position risk reaches to 2% of my equity.

7. When the trend reverses I start to sell my positions gradually if the price starts to get below the moving averages.

8. In terms of risk management; I want to leave all the positions if my equity drops 3% in one week and stop trading for this week , if equity drops 12% in one month I stop trading for that month.

Thanks for your help.

Your method sounds consistent with trend following.

 

You trade with the trend, and cut losses. Your risk management protects both your equity and your enthusiasm from falling below key levels.

 

You use SVO-p language ... Subject, Verb, Object with present tense.

 

You are open to share your method, solicit advice improve your trading.

 

All in all, seems like you have a trend following method and trend following attitude and that elements are in harmony.

 

 

Getting in Harmony

 

SPEBSQSA Society for the  Preservation and Encouragement of Barber Shop Quartet Singing in America.

 

Wed, 26 Mar 2003


Surprises
See Sun, 23 Mar 2003 Surprises

For example, over all, equities markets were in a down trend when the 9/11 tragedy took place. If this tragedy had occurred at another time during a major up trend, do you think its safe to assume the markets would have shrugged off such news? If not, would it not still be a surprise (organically), despite the fail safe mechanisms set in place.

News events often push the move along the trend. When they fail to do so, watch out for reversals.

 

I don't assume it's safe to assume it's safe to assume.

 

 

 

Fail Safe

Fonda and Matthau ... safety ultimately depends on clarity.

 

Wed, 26 Mar 2003

 

Keeping Mind and Spirit Clear

Dear Ed,

My trading has greatly improved. I believe this is because my attitude towards trading and life has become very positive. Keeping my mind and spirit clear is proving to be incredibly important. Thank you for your ongoing help, your knowledge is astounding.

Good Work! Stick with it, don't quit it.

 

 

Once a Day to Keep Mind and Spirit Clear

 

Tue, 25 Mar 2003

 

Number of Markets to Trade

see: FAQ 24 March 03


Dear Ed,

My daily fix is absorbing the wisdom from FAQ, first thing in the morning. Thanks.

Since I trade only equities, (as access to global instruments is not yet available in India) I find that keeping a short position in a bull market (as well as the converse, longs in a bear market) as a hedge strategy, is not a great approach. There is always an overhanging effect of the major trend, and to keep probabilities in my favor, I find that trading only primary moves in the direction of the major trend, a better strategy.

Would appreciate your comments/views.

When you're up to bat, it doesn't pay to hedge your swing. Bunting is a good  sacrificial move. True for stocks & true for Bonds.

 

 

 

Barry Bonds

Tue, 25 Mar 2003

 

Poor Resource, Pointless, Missed Out


Please finish your book soon. If we trend following students have to rely on XXX for much longer, we are in big trouble. I've seen 8th grade biology reports that are better put together than the XXX manual.

My question is the following. I use Jesse Livermore's technique of pivot points to generate my entry and exit signals. Since this is an art and can't be quantified, I'm assuming that back testing even to get a feel for money management and heat, will be a pointless if not impossible endeavor.

Second question: I am taking your advice on examining charts of the past big trends. As I am only 30, I completely missed out on the classic bull/bear trends from 1970 - 1990. If you could make a list what they were maybe others would find it helpful as well.

Tone and attitude tends to come true in the markets and elsewhere.  If you like to complain, the markets can sure give you lots to complain about.  How about shift your focus from negative, impossible and complaining to helping xxx come up with a better way.

 

 

Find a Better Way to Do Things

 

Tue, 25 Mar 2003

 

Mentors from Trading Tribe

I, like many others on this site, truly appreciate the opportunity to share ideas not only with you but with other traders trying to grow both personally and professionally. I feel like I've known you for quite a while. Like many others on this site, I've read and re-read many articles and stories that you've participated in. Also, there are two people that have been mentors of mine that were part of the Trading Tribe. Thanks again for providing this site and your insights on trading and life.

 

 

Pass the Beat

 

Tue, 25 Mar 2003

 

Conversational Material


1. I have to mention honestly that your FAQ section is the most inspiring material I have ever read on trading since my interest has started on this subject.

After your advice about using always active sentences instead of passives most of the issues that I have considered to solve for some time have appeared more clearer.

You are 100% right that everybody has the power inside to solve every problem that he faces, but taking the responsibility is the most irritating situation for most of the people. To blame somebody is the easiest path and you feel yourself relaxed by not assuming any responsibility.

2. Is there any possibility to put a sample conversation material of your trading tribe meetings for the people who do not have chance to participate your tribe for now.

Trading Tribe members develop a high level of camaraderie and trust as they get to know each other.  The specifics are confidential, and no one keeps records.

 

 

Victoria's Secret

Isn't Really Very Much of a Secret

 

Mon, 24 Mar 2003

 

Fishing in Hawaii

Just a couple of shots of a little fishing luck on our recent trip to Hawaii.

 

The price of the fish is what you didn't do in the markets while you were on vacation.  It's important to take time off to keep the mind clear and the judgment trustworthy. Sometimes the winning move is not to play. 

Joshua, the computer, concludes nuclear war is a strange game, and the only way to win is not to play.

Mon, 24 Mar 2003

 

Number of Markets to Trade

Your insights and your success story have given me hope in a very difficult environment. My question is if you are only trading equities, how many equities at a maximum would you follow for trading signals. Also since equities are positively correlated, would you always keep a hedged position (long and short) to counteract this to some degree. Thank you again for being a great source of inspiration.

You can break your question in two.

 

How many instruments you track

How many of those you trade at one time.

 

As you trade more things at a time, your performance emulates an index fund.  The best hedge is to trim your position.

 

 

For Hedging and Trimming

 

Sun, 23 Mar 2003

 

Surprises

Why do you suppose surprises almost always happen in the direction of the trend?

A surprise is an event that catches someone unaware. If you are already on the trend, the surprises seem to happen to the other guys.

 

 

Surprise !